- 'This trend looks irreversible,' supplier exec says of tech industry's production shift
According to Nikkei Asia article published on January 5, 2023, U.S. computer maker Dell aims to stop using chips made in China by 2024 and has told suppliers to significantly reduce the amount of other "made in China" components in its products as part of efforts to diversify its supply chain amid concerns over Washington-Beijing tensions.
The world's third-largest computer maker by shipments told suppliers late last year that it aims to "meaningfully lower" the amount of China-made chips it uses, including those produced at facilities owned by non-Chinese chipmakers, three people with direct knowledge of the matter told Nikkei Asia.
Dell's goal is to have all chips used in its products produced in plants located outside China by 2024, they said.
The move is the latest example of how the tech war between the U.S. and China is accelerating electronics makers' efforts to diversify production away from Asia's biggest economy.
"The goal is quite aggressive. The determined shift involves not only those chips that are currently made by Chinese chipmakers but also at the facilities in China of non-Chinese suppliers," one person with direct knowledge of the matter said. "If suppliers don't have responding measures, they could eventually lose orders from Dell."
Dell's domestic rival HP has also started surveying its suppliers to gauge the feasibility of moving production and assembly away from China, sources said.
In addition to chips, Dell has asked suppliers of other components such as electronic modules and print circuit boards, and product assemblers to help prepare capacity in countries beyond China, like Vietnam, sources added.
Previously, computer makers like Dell and HP bought chips from chip developers without worrying too much about where they were manufactured. The change of attitude has taken some in the industry by surprise.
"There are thousands of components for notebook computers, and the ecosystem was so mature and complete in China for years," an executive at a chip supplier to both Dell and HP told Nikkei Asia. "Previously we knew Dell kind of had plans to diversify from China, but this time it is kind of radical. They don't even want their chips to be made in China, citing concerns over the U.S. government's policy. ... It's not just an evaluation, it's not crying wolf. It's a real and ongoing plan, and this trend looks irreversible."
Asked about its plans, Dell told Nikkei Asia, "We continuously explore supply chain diversification across the globe that makes sense for our customers and our business." It also stressed that "China is an important market where we have team members and customers to serve."
The computer maker did not comment in detail on its diversification plans but said, "to best meet our customers' and partners' needs and expectations, we have geographic diversity, flexibility and stability built into our global supply chain."
Washington has been ramping up its crackdown on China's chip sector, citing national security concerns. It unveiled several strict controls on exports to the country last October. Top Chinese chipmaker SMIC said in November that some of its U.S. chip developer customers had become hesitant about placing orders following the clampdown.
These tensions have provided fresh impetus for companies to shift the PC supply chain, including assembly, away from China, where it has been deeply rooted for decades. Dell and HP -- which together shipped more than 133 million notebook and desktop computers in 2021, according to data provider Canalys -- have most of their assembly in the Chinese cities of Kunshan, Jiangsu province, and Chongqing, Sichuan province. Apple plans to start making its MacBook computers in Vietnam by the middle of this year, which means the company would have some alternative non-China production bases for all of its major product lines.
"The rising geopolitical tensions between the U.S. and China is one of the top reasons that electronics builders are now more serious about executing the plans to build a meaningful alternative production base besides China. That is true for Apple as well as other American electronics makers and brands," Eddie Han, an analyst with Isaiah Research, told Nikkei Asia.
Ivan Lam, a tech analyst with Counterpoint, told Nikkei Asia that more manufacturing bases for electronics will start to emerge over the next five to 10 years.
"The regional production hubs will be emerging in India, in Southeast Asia and also in Latin America, and the shift will be starting from only product assembly to involve more components," Lam said. "We still think it will take a lot of time, but this time the trend is really emerging and that will be a tech supply chain's future."
Asked by Nikkei Asia for comment on its plans, HP said, "We have a robust supply chain operation in China and around the world to serve our customers."
